ABSTRACT
Average sales, production, costs, returns, and efficiency indicators are presented for 49 wholesale woody
ornamental plant nurseries in Florida for the tax year of 1989: 38 container ornamental growers and 11 field
nurseries. Plant sales averaged $412 thousand for container firms, and $342 thousand for field nurseries. Plant
inventories decreased for container firms but increased substantially for field nurseries, giving net values of
production of $394 thousand and $468 thousand, respectively. Net nursery income averaged $42 thousand for
container firms and $198 thousand for field firms. Current value of capital investments including plant
inventory, land, equipment, buildings, supplies, cash on hand, and accounts receivable amounted to $761
thousand for container firms and $1.142 million for field nurseries. Average rates of return on capital
investment were negative .2 percent for container firms and 12.1 percent for field nurseries. Comparable
information is presented also for large, small, and most profitable firms of both types. Highly profitable firms
of both types had high or very high space productivity (production/sq.ft.), labor productivity, and inventory
turnover, and low or very low costs for labor, other production costs, overhead, and non-cash costs.

ACKNOWLEDGEMENTS
This report was made possible by the cooperating woody ornamental nursery operators who made available
their production and accounting records on a confidential basis for analysis and averaging. Assistance was
provided by University of Florida Extension Ornamental Horticulture Agents Gerri Cashion, Cathy Neal,
Loretta Hodyss, Michael Holsinger, DeArmand Hull, Linda Landrum, Roger Newton, Bill Schall, Uday Yadav,
and Victor Yingst. Special acknowledgement is given to Dr. J. Robert Strain, Professor Emeritus, who
developed the Nursery Business Analysis Program in its present form, and who retired in July, 1990. Any
errors in the analyses or in the interpretation of the information presented herein, however, are the sole
responsibility of the author.

The Institute of Food and Agricultural Sciences is an Equal Opportunity/Affirmative Action Employer authorized to provide research, educa-
tional information and other services only to individuals and institutions that function without regard to race, color, at, or national origin.
Florida Cooperative Extension Service / Institute of Food and Agricultural Sciences / University of Florida / John T. Woeste, Dean

BUSINESS ANALYSIS OF WOODY ORNAMENTAL
CONTAINER AND FIELD NURSERIES IN FLORIDA, 1989
Alan Hodges

ABSTRACT
Average sales, production, costs, returns, and efficiency indicators are presented for 49 wholesale woody
ornamental plant nurseries in Florida for the tax year of 1989: 38 container ornamental growers and 11 field
nurseries. Plant sales averaged $412 thousand for container firms, and $342 thousand for field nurseries. Plant
inventories decreased for container firms but increased substantially for field nurseries, giving net values of
production of $394 thousand and $468 thousand, respectively. Net nursery income averaged $42 thousand for
container firms and $198 thousand for field firms. Current value of capital investments including plant
inventory, land, equipment, buildings, supplies, cash on hand, and accounts receivable amounted to $761
thousand for container firms and $1.142 million for field nurseries. Average rates of return on capital
investment were negative .2 percent for container firms and 12.1 percent for field nurseries. Comparable
information is presented also for large, small, and most profitable firms of both types. Highly profitable firms
of both types had high or very high space productivity (production/sq.ft.), labor productivity, and inventory
turnover, and low or very low costs for labor, other production costs, overhead, and non-cash costs.

ACKNOWLEDGEMENTS
This report was made possible by the cooperating woody ornamental nursery operators who made available
their production and accounting records on a confidential basis for analysis and averaging. Assistance was
provided by University of Florida Extension Ornamental Horticulture Agents Gerri Cashion, Cathy Neal,
Loretta Hodyss, Michael Holsinger, DeArmand Hull, Linda Landrum, Roger Newton, Bill Schall, Uday Yadav,
and Victor Yingst. Special acknowledgement is given to Dr. J. Robert Strain, Professor Emeritus, who
developed the Nursery Business Analysis Program in its present form, and who retired in July, 1990. Any
errors in the analyses or in the interpretation of the information presented herein, however, are the sole
responsibility of the author.

The Institute of Food and Agricultural Sciences is an Equal Opportunity/Affirmative Action Employer authorized to provide research, educa-
tional information and other services only to individuals and institutions that function without regard to race, color, at, or national origin.
Florida Cooperative Extension Service / Institute of Food and Agricultural Sciences / University of Florida / John T. Woeste, Dean

BUSINESS ANALYSIS OF WOODY ORNAMENTAL
CONTAINER AND FIELD NURSERIES IN FLORIDA, 1989
Alan Hodges1

INTRODUCTION
This report presents information on sales, costs,
returns and production efficiency for 49 wholesale
woody ornamental nurseries in Florida for 1989.
These results are part of the University of Florida's
ongoing Nursery Business Analysis Program. This
information is intended for:
1) Nursery managers--to use physical and
economic measures for evaluating the efficiency of
individual nurseries and for making more informed
management decisions;
2) Allied trades professionals--to estimate input
requirements and revenue potential for wholesale
ornamental nurseries;
3) Industry investors--to have guidelines for
average business performance;
4) Extension educators--to use for conducting
educational programs with nursery operators;
5) Researchers--to support research activities for
the ornamental horticulture industry.

PROCEDURES
The information presented in this report is based
on confidential production and accounting records
provided by nursery operators who participated in
the program voluntarily. This is not a statistically
representative sample of firms, but is believed to be
biased toward better-managed woody ornamental
firms. Nursery operators who provided data received
an analysis for their own operation, which contained
similar information as presented in this report.

Data were collected for the 1989 fiscal year. In
most cases this was for the calendar year January--
December, 1989, however, in a few cases data for
fiscal years ending after July 1, 1988, and before July
1, 1990, were included as 1989 data.

The Nursery Business Analysis is a economic-
oriented appraisal rather than a financial or tax
accounting appraisal. As such, it attempts to provide
an economic valuation for all resources and
production activities, whether or not they have an
actual monetary value for any particular firm. For

example, in firms which did not report a salary for
its managerss, an estimate of their time value was
made, based on the their experience and other
opportunities for income, in order to provide an
economic valuation for management, which is a
critical input for any business. Similarly, an interest
charge for the total owned capital investment was
included as a non-cash cost, calculated at the rate of
12 percent per year, regardless of any interest
expense paid by individual firms. This provided a
comparable basis for interest costs across all firms.

Capital investments and leased capital assets were
an important part of the analysis. In the case of sole
proprieterships and closely held corporations (sub-
chapter S, or "family" businesses), investments in
land were valued at the original purchase price;
investments in buildings, improvements, machinery
and equipment reflected their depreciated book
value; and debt held by family members was not
included among liabilities. In the case of regular
corporations, land, buildings, and equipment were
evaluated at current market value. The majority of
firms were of the former type, so investments in land
did not represent their current value, especially for
older firms, because of the rapid increase in Florida
land values.

Plant inventory was a critical element of the
wholesale nursery business. Changes in plant
inventory levels must be accounted for in conjunction
with annual sales in order to assess total production
of a firm. In this analysis, emphasis is placed upon
"value of production", defined as sales plus change in
plant inventory value, as a measure of productive
capacity. Plant inventory was also included among
owned capital investments, as an average of year
beginning and year end values, reflecting wholesale
prices, discounted in proportion to the percentage of
completion. In the absence of detailed inventory
records, plant inventory was evaluated at 50 to 75
percent of the finished wholesale value for all plants
in production at the beginning and end of the year.

Records were separately compiled and analyzed
for two different types of woody ornamental nursery

production systems: container and field production.
Container woody ornamental firms grow plants in
nursery containers ("pots") ranging in size from 1 to
100 gallons or more, while field producers grew
generally larger plants in the ground, which were dug
and sold with a football wrapping. In recent years,
a hybrid production system, known as "grow-bags" or
in-ground containers has been developed to confine
the roots of plants growing in the field. Several of
the field nursery firms sampled for this report used
this type of production system extensively. In the
case of participating firms whom provided separate
records for container and field divisions within their
company, allocation of overhead expenses, labor
hours, and financial account balances was generally
based upon the share of total company sales for each
division, in the absense of detailed records.

In previous years, results for these two nursery
types were reported in separate publications,
however, results are here consolidated so that
comparisons may be made. Average size of business
differed substantially between the two groups
sampled, but these differences probably reflect a
great deal of sampling error, and should not be
taken as any indication of average firm size.

In addition to the field and container groupings,
data were analyzed for subgroups of large and small
firms, and highly profitable firms, so that an
appreciation can be gained for effects of scale, and
for the elements of successful businesses. Small
firms were defined as having annual sales less than
$200 thousand, and large firms as having annual sales
greater than $500 thousand. Highly profitable firms
had rates of return on capital investments greater
than 15%.

The results reported are weighted averages for
firms in each group. In other words, basic
information on sales, expenses, etc. was first
averaged, then analyzed as though for a single
"average" firm. This procedure provided results that
were weighted for the overall size of the firms
involved. Also, for some measures, results are given
for the "highest rates" and "lowest rates",
representing averages for the highest or lowest third
of firms for that particular measure.

Further information on definitions and
calculations are given in the Appendices, along with
detailed results in the Appendix Tables.

Container and Field Nurseries in Florida, 1989

RESULTS
Complete and usable records were received from
49 woody ornamental firms: 38 container growers,
and 11 field growers. Numbers of firms represented
for each grouping of large, small, and most profitable
firms are indicated in Table 1 along with basic
information on business volume and scale of
production operations. Four firms contributed
records for both container and field nurseries.

Value of Production

Annual sales
Figures reported here represent only plants
produced by the participating nursery firms. Sales of
plants purchased for immediate resale, or "brokered,"
were deducted from total sales to give net value of
"own" plant sales, which averaged $412.0 thousand
for container firms, and $341.9 thousand for field
nurseries (Table 1). The largest 13 container firms
had sales averaging $796.1 thousand, and the largest
3 field firms had average sales of $718.5 thousand.
The smallest 12 container firms had sales averaging
$94.1 thousand, and the smallest 4 field firms had
average sales of $88.9 thousand.

Plant Inventory Change
Changes in plant inventory levels were accounted
for to evaluate total production, in addition to sales.
Table 1 shows average plant inventory changes, for
container and field woody ornamental firms. Average
plant inventory change was positive for all field firms
($126.4 thousand), meaning that total value of
production exceeded annual sales. Container firms
had a decrease in average plant inventory (-$17.8
thousand), thus giving a total value of production
less than annual sales. Both large and small field
firms and small container nurseries had increased
inventory, while large container firms had decreased
inventory.

Container and Field Nurseries in Florida, 1989

Table 1-Value of Production and Productive Resources,
Woody Ornamental Container and Field Nurseries, 1989.

Monthly sales
Figure 1 shows that the
pattern of average monthly
sales for both container and
field nurseries followed
similar trends: peak sales
during the early spring
months (March through May
for container; Jan. through
Mar. for field), followed by
depressed summertime sales,
then a secondary smaller
sales peak in Novenber or
December. Generally,
container nurseries had more
seasonal sales than did field
nurseries. Sales for the peak
three month spring period
accounted for 30.3% and
27.8% of the year's total
sales, for container and field
nurseries, respectively. Sales
for the highest month were
1.53 times greater than the

Cornt.ner F-l- FIeld
Figure 1--Monthly sales for all container and field nursery firms sampled in
Florida, 1989. Monthly figures include brokered sales.

lowest month for container firms and 1.46 times greater for field nurseries. Monthly sales for large and small
firms followed nearly the same patterns as their respective overall averages, except for small field nurseries,
which had a later spring sales peak, (April through June), and somewhat greater seasonality, as indicated by
a 35.9% of annual sales during this period. The finding of greater seasonality for container nurseries overall
is counter to expectations that container production allows more flexible marketing because no conditioning
period is required before shipment, as with digging field-grown plants.

Productive Resources: Land, Labor and Capital

Land Resources
Space available for growing plants was measured
as average square footage of net usable growing area
at the beginning and end of the year. Net usable
growing area included only space within growing
beds and field; aisles, driveways, or other service
areas were excluded. As shown in Table 1, growing
space averaged 430.3 thousand square feet (9.9
acres) for container firms, and 2.089 million square
feet (48.0 acres) for field firms. Large container
firms had 19.5 acres. The largest 3 field nurseries
actually had less growing area (40.7 acres) than the
overall average, indicating the wide range of space
use intensity. The smallest container firms had 2.2
acres of growing area, and the smallest field
nurseries 16.1 acres.

Labor Resources
Labor was measured in terms of full-time
equivalent persons, including office and management
personnel. In most cases, this was calculated by
dividing total labor hours by 2,080 hours per man-
year (52 weeks at 40 hours per week). Average
number of full-time equivalent (FTE) persons was
13.7 for container nurseries, and 9.2 for field firms
(Table 1). The largest container firms employed
25.6 FTE and largest field firms 13.5 FTE, while the
smallest container firms employed 5.8 FTE and
smallest field nurseried 5.5 FTE.

Capital Resources
All forms of owned and leased assets, including
land, buildings, equipment, plant inventory, accounts
receivable and cash on hand represent capital
resources for nursery production. Owned capital in
buildings, improvements and equipment were
assessed at current value: original cost less
accumulated depreciation. Total capital owned
averaged $761.1 thousand for container nurseries and
$1.142 million for field firms (Table 1). The largest
container firms had average owned capital of $1.407
million, and largest field firms had $1.596 million.
The smallest container firms had average owned
capital of $285.3 thousand and small field firms
$625.7 thousand. Additional capital managed in the
form of leased assets averaged $77.8 thousand for
container firms and $426.5 thousand for field
nurseries, giving total capital managed of $837.8
thousand, and $1.569 million, respectively.

Container and Field Nurseries in Florida, 1989

Distribution of Managed Capital--among land,
buildings, equipment and other assets, is indicated in
Figures 2a and 2b, for all container and field firms,
respectively (see also Appendix Tables 4a and 4b).

Figure 2b--Distribution of managed capital, field
nurseries, 1989.
Growing plants represented the largest share of
capital managed in both container firms (63.3%) and
field firms (57.6%). Land was second in importance
as a share of total capital managed with 20.8% for
container firms and 34.8% for field nurseries.
Surprisingly, machinery and equipment represented
a greater share for container firms (3.7%) than for
field nurseries (2.3%). Accounts receivable
represented 4.8% and 2.9% of managed capital,
respectively, and buildings and installations 3.8% and

Land 34.a%

Plants 57.5

AccOUnts
Suppl
"ll
i I

3 E

Container and Field Nurseries in Florida, 1989

1.1%. Supplies and cash on hand together
comprised 3.7% of managed capital for container
nurseries, and 1.4% for field firms.

Resource Use Indicators

Space Use
Space productivity was measured by value of
production (annual sales plus inventory change) per
square foot of growing space. As shown in Figure
3, value of production per square foot for container
firms ($.92) was more than 4 times greater than for
field firms ($.22) because of the more intensive type
of production system. Large container firms had
below-average space productivity ($.83/sq.ft.), while
smaller firms were substantially above average
(S1.41/sq.ft.). In contrast, large field firms had
above-average production per square foot ($.61), and
small firms had production per square foot equal to
the average ($.22/sq.ft.). The third of sampled firms
with the highest space productivities averaged $2.12
per square foot for container firms and $.55 per
sq.ft. for field nurseries.

The most profitable third of firms had space
productivities of $1.19 per square foot for container
nurseries, and $.55 per square foot for field firms.
This was the same as the highest rates for field
nurseries, and well above-average for container
growers, indicating the importance of high space
productivity for profitable nursery operations. Low
space productivity may result from several causes:
overmature plants, high vacant space, slow plant

growth, and disease and quality problems that reduce
yields of salable plants. In addition, nursery layout
and plant fertilization and growing other techniques
can affect production time and space requirements.

Space productivity on the basis of growing
acreage averaged $39.9 thousand per acre for
container firms, and $9.8 thousand per acre for field
nurseries (Appendix Tables 2a and 2b).

Plant Inventory turnover is another indicator of
space productivity. Inventory turnover expresses the
rate at which inventory is replaced on an ongoing
basis, and is calculated as annual sales divided by
average inventory value. Plant inventory turnover
averaged .775 or 77.5 percent for container firms,
and .378 or 37.8 percent for field firms (Appendix
Tables 4a and 4b). In other words the number of
"crops" per year averaged about three-quarters for
container firms and one-third for field firms. This is
another indication of the greater space production
intensity of container production systems. However,
the pattern of results for large vs. small and most
profitable firms differs from those for production per
square foot because the inventory turnover measure
is complicated by inventory values. Large firms in
both groups had higher inventory turnover rates (.80
for container, 56 for field) and small firms had
lower rates (.64 and 21, respectively). Highly
profitable container firms had turnover rates (1.60)
nearly as great as the highest rates (1.71), but highly
profitable field firms had turnover rates (.49) closer
to the overall average. This is due to South Florida
field nurseries producing highly valuable but
relatively slow-growing crops such as palms.

Labor Use
Labor productivity was measured in terms of
value of production per full-time equivalent worker
(FTE, 2080 hrs/year). Figure 4 shows that labor
productivity was generally higher for field nurseries
$50.7 thousand/FTE) than for container firms ($28.8
thousand/FTE). For container nurseries, both large
and small firms had below-average labor productivity
($27.5 and $23.3 thousand/FTE). For field nurseries,
large firms had significantly above-average labor
productivity ($80.7 thousand/FTE) and small firms
were well below-average ($28.6 thousand/FTE).
Highest rates of labor productivity for field firms
($105.1 thousand/FTE) were more than twice as
great as for container firms ($48.7 thousand/FTE),
but lowest rates were nearly the same ($18.9
thousand and $14.1 thousand per FTE, respectively).

OaMnflt

E... Tin-

owl W4*..
M ftil WW Ito I*l

C 1.55

S0.55
0 o.0 1 S. 00

Dollars Per Square Foot

per fulltime equivalent person (FTE, 2,080 man-
hours per year).
Highly profitable firms of both types had labor
productivities approximately 50% above average
($43.6 thousand/FTE for container, $70.0
thousand/FTE for field), indicating the importance of
labor productivity for profitable operations.
Variation in labor productivity can result from
differences in investment in labor saving capital
items, labor management practices, or other practices
affecting crop turnover.

Labor intensity was evaluated in terms of
production area per person or FTE persons per acre
of growing area. Total growing space per full-time
equivalent averaged 31.4 thousand square feet (.72
acres) for container nurseries, 226.8 thousand square
feet (5.2 acres) for field firms Appendix Tables 3a
and 3b). Expressed another way, figure 5 shows the
number of FTE persons per acre of growing space
averaged 1.39 for container firms and .19 for field
firms. Large container firms had slightly lower labor
intensity (1.31 FTE/A), but small container firms had
much higher labor intensity (2.64 FTE/A). Both
large and small field nursery firms had above-average
labor intensity (.33 and .34 FTE/A, respectively).
Highly profitable container firms had slightly below-
average labor intensity (1.19 FTE/A), but profitable
field firms were well above-average (.34 FTE/A).

Capital Use
Capital Turnover is an indicator analogous to
inventory turnover, except that it expresses the ratio
of annual sales to value of owned capital. Results
for this measure generally paralleled those for
inventory turnover. As shown in figure 6, capital
turnover averaged .54 for contains nurseries, and
30 for field firms. Thus, container firms had annual
sales equal to about one half of capital owned, and
field firms about one-third of capital owned. Large
container firms had slightly above-average capital
turnover rates (.57), and large field nurseries had
significantly above-average turnover (.45). Small
firms of both types had turnover rates (.33 and .14)
nearly as low as the lowest rates (.30, .17). Most
profitable firms had inventory turnover rates (.85,
.38) nearly as high as the highest rates (..93, .43).

In general, high capital turnover is desirable,
indicating greater sales per dollar of investment.
Problems that lower turnover rate include any of
those already mentioned that lower production rate,
and therefore lower sales volume for a given nursery
investment. Low capital turnover is particularly
common in new firms and in rapidly expanding firms.
Excessive investments in land, labor-saving machinery
and equipment also tend to lower captial turnover.

Capital Managed Per Person is an indicator for
balancing of capital and labor resources, calculated
as total capital managed divided by employment
(FTE). As shown in Figure 7, capital managed per

FTE was generally higher for field firms ($170.4
thousand/FTE) than for container nurseries ($61.3
thousand/FTE). Large container firms averaged
$59.3 thousand in capital managed per person, while
small firms averaged $52.8 thousand per FTE. Large
field nurseries had above-average capital managed
per person ($218.9 thousand/FTE), and small firms
were below-average ($124.6 thousand/FTE). Highest
rates averaged $107.1 thousand per person for
container firms, and $356.3 thousand per person for
field nurseries. Lowest rates averaged $28.7 thousand
and $86.4 thousand per person, respectively. The
most profitable container firms had below-average
capital managed per person ($50.8 thousand), but
most the profitable field firms were above-average
($186.5 thousand).

Capital Managed Per Acre is another indicator
for balancing productive resources between capital
and land. As shown in Figure 8, capital managed
per acre of growing area was generally higher for
container nurseries ($84.9 thousand/A), than for field
firms ($32.7 thousand/A). Large container firms
averaged $77.9 thousand per acre, and large field
nurseries more than twice the average, $72.3
thousand per acre. Small firms had above-average
capital managed per acre for both container
nurseries ($139.5 thousand) and field nurseries
($42.3 thousand/A). Highest rates of capital
managed per acre were $141.1 thousand for
container nurseries and $83.2 thousand for field
firms. Lowest rates averaged $59.9 thousand per

acre for container firms, and $15.3 thousand per acre
for field firms. Most profitable container firms had
capital managed per acre ($60.7 thousand) near the
lowest rates, while most profitable field firms had
nearly double the average capital managed per acre
($63.6 thousand/A).

iUI-

AlB 1 fi

SLam mm
UI OM Pfita*

Field

Costs of Production
The significance of managing production costs has
become heightened by increased competition in the
woody ornamental industry, with falling prices for
products forcing producers to find new ways to cut
costs. Many managers do not clearly understand that
costs include not only cash outlays, but also non-
cash costs and allowances such as depreciation and
interest, which must be covered for the business to
remain viable over the long run.

Costs by Expense Category
Costs were grouped into the following categories:
management's compensation, wages and salaries,
production supplies, other production costs,
administrative and overhead, and non-cash costs.
Table 2 summarizes dollar amounts for each cost
category, and Figures 9a and 9b give percentage
shares of the total for each category, in order to
compare costs among groups differing in average
size. Further details on all itemized expenses are
given in Appendix Tables 5a and 5b.

Management's Compensation or Time Value--
averaged $43.8 thousand for container nurseries, and
$59.1 thousand for field firms (Table 2). These
amounts represented 8.9% and 12.4% of total costs,
respectively. Large container firms compensated
management an average of $75.5 thousand (8.0%),
and large field firms $130.7 thousand (15.4%).
Average compensation to management in small firms
was $24.1 thousand (15.4%) for container nurseries,
and $27.1 thousand (12.9%) for field firms.

Employees' wages and payroll costs is one of the
largest cost categories for the woody ornamental
industry. In addition to wages and salaries, this
category included benefits, social security, workman's
compensation insurance, health insurance, bonuses,
and other payroll costs. Average labor expenses
were 32.8% of total costs ($162.5 thousand) for
container nurseries, and 26.0% ($123.9 thousand for
field firms (Table 2). Large container firms spent a
much greater percentage of total costs on employees
(34.8%) than did large field firms (22.8%). Small
firms of both types spent a smaller share of expenses
on employees (24.8% and 20.8%, respectively)
because a lesser share of work was performed by
hired labor.

Production supplies--included expenses for plants
and seeds, containers, peat and soil, fertilizer and

Container and Field Nurseries in Florida, 1989

lime, pesticides and chemicals, and other production
supplies. Expenses for supplies represented 21.5%
of total costs ($106.3 thousand) for container firms,
and 17.6% ($84.0 thousand) for field firms. Large
container nurseries spent 21.8% ($205.8 thousand)
of total costs on supplies, and large field firms spent
23.7% ($200.7 thousand). Small nurseries spent a
smaller share of total expenses on supplies: 18.6%
($29.1 thousand) for container firms, and 14.4%
($30.1 thousand) for field nurseries. The largest
single item within this category was plants and seeds,
representing 6.7% of total costs for container firms,
and 8.6% for field nurseries.

Other production costs--were facility
repairs/maintenance and equipment operating costs.
These costs averaged 4.6% ($22.6 thousand) of total
costs for container nurseries, and 4.9% ($23.3
thousand) for field firms. Large container firms
spent 4.4% ($41.3 thousand) and small nurseries
spent 2.5% ($3.9 thousand). Large and small field
firms spent 5.6% ($47.7 thousand) and 3.4% ($7.0
thousand), respectively, of total costs on this
category.

Administrative and overhead are those expenses
which usually cannot be assigned to any particular
production activity, yet must be covered in order to
remain in business. This category included travel,
property insurance, telephone, electric power,
advertising, property taxes, rent, and other cash
expenses. Administrative and overhead expenses
averaged 9.9% ($49.1 thousand) of total costs for
container nurseries, and 73% ($34.9 thousand) for
field firms. Larger firms had a slightly lower share
of overhead costs, with 9.3% ($88.0 thousand) for
container firms, and 6.7% ($57.0 thousand) for field
firms, indicating some economy of scale. Small firms
had above-average overhead costs: 11.6% ($18.2
thousand) for container, 9.6% ($50.3 thousand) for
field nurseries.

of production, Figure 9b--Distribution of costs of production, field
nurseries, 1989.

Supp ie
21.5%

I te
18.

Interest
28.9%
Labor
26.0%

D rr 1( t ln

%

32.8

st

rest Me
5%

Labor

5%

Total cash costs--included all categories discussed
above. Total cash costs averaged $384.3 thousand
for container nurseries, and $325.1 thousand for field
firms. These amounts represented 77.6% and 68.2%
of total costs, respectively. Large firms had a slightly
greater percentage of cash costs to total costs: 78.4%
for container, 74.2% for field. Small nurseries had
a lower share of total cash costs: 72.9% for
container, 61.0% for field

Non-cash costs--included depreciation on fixed
assets (buildings, equipment), decreases in supply
inventories, and an interest charge on capital owned
to reflect the opportunity cost of assets used. These
costs averaged $110.7 thousand for container
nurseries, and $151.3 thousand for field firms. The
largest share of these costs was for interest: 18.5%
of total costs for container firms, and 28.8% for field
nurseries. Depreciation represented 3.9% and 3.0%
of total costs, respectively.

Cost Efficiency
Cost efficiency can be assessed in terms of costs
per unit area of production space (per square foot),
or costs per unit of revenue (sales and production).

Cost Per Square Foot of Growing Space
Square foot costs are a useful measure for
estimating individual plant growing costs or
comparing cost efficiency of different types of
production systems. Total costs per square foot
averaged $1.15 for container nurseries, and $.23 for
field firms (Figure 10). Large container firms had
slightly below-average costs per square foot ($1.11)
and small firms were substantially above average
($1.63). Among field firms, both large and small had
above-average costs per square foot ($.48, and $.30,
respectively). Highest costs per square foot averaged
$2.26 for container nurseries and $.72 for field firms,
while lowest costs averaged $.81 and $.12,
respectively. The most profitable firms had total
costs per square foot of $.99 for container nurseries,
and $.43 for field firms.

Costs Per Dollar Value of Production
Cost per unit of revenue is a direct measure of
long-term profitability. As shown in Figure 11, total
costs averaged $1.26 per dollar value of production,
or 126% of revenue for the container nurseries, and
102% for field firms. Thus, average total costs for
both groups exceeded the breakeven cost level of

Container and Field Nurseries in Florida, 1989

Do llars Per Square Foot

a.o ---- -----------------
.5.

2.0 ............................................

,. ..... .... .......--.. ..... .....

1..

L I I Field

Figure 10--Costs per square foot of total growing.

$1.00 per dollar value of production. However, this
deficit did not really represent a "loss", but merely a
failure to meet the interest cost allowance for a 12
percent return on capital investment. Large and
small container firms, and small field firms were also
above the break-even cost level (Figure 11). Large
field nurseries were below the break-even level with
total costs 78% of value of production. The most
profitable firms had total costs averaging 83% of
total value of production for container firms, and
79% for field nurseries. Further details on these
results are given in Appendix Tables 6a and 6b.

Container and Field Nurseries in Florida, 1989

Cash Costs Per Dollar of Sales
This is a short-term measure of profitability and
financial solvency relating only current cash expenses
with current income (sales). Cash costs averaged
93% of sales for container firms, and 95% for field
firms. Large firms had cash costs of 93% and 88%,
respectively. Small firms of both types had the
serious problem of cash costs exceeding sales by 21%
for container nurseries and 44% for field firms. This
means that these firms were not able to meet
current operating expenses from cashflow generated
by sales. Most profitable firms had cash costs 84%
and 94% of sales, respectively.

Income Summary
In Table 3, income and costs are reorganized to
derive net income in a manner more like traditional
accounting practices, without the allowance for
interest cost on capital.

Total gain is the total value of plant sales,
changes in plant and supply inventory values, and
miscellaneous income. In addition to the plant sales
and inventory growth revenue discussed previously,
miscellaneous income averaging $6.3 thousand for
container firms and $8.3 thousand for field firms
produced a total gain of $401.9 thousand and $477.8
thousand, respectively (Table 3).

Cost deductions are the same as total costs
discussed previously, except for commission of the
operator's salary and allowance for interest on
capital, so that these costs can be explicitly
recognized. Total deductions averaged $359.8
thousand for container nurseries, and $280.3
thousand for field firms. Total deductions are
subtracted from total gain to give net nursery
income.

Net nursery income is the total annual return for
the firm, before income taxes, compensation to
management and interest on capital. Average net
nursery income was $42.1 thousand for container
nurseries and $197.5 thousand for field firms (Table
3). Large container firms had below-average net
incomes of $26.3 thousand, and large field firms had
$579.8 thousand. Small firms had average net
incomes of $38.5 thousand for container nurseries,
and $49.8 thousand for field nurseries. The most
profitable firms had net incomes of $151.2 thousand
and $509.4 thousand, respectively.

Return to Capital

Net nursery income may be apportioned between
returns to management and returns on capital
investment in order to evaluate the economic
efficiency of these resources. Return to capital is the
part of net nursery income attributable to the capital
investment, calculated by subtracting the
compensation to management from net nursery
income. Return to capital averaged $138.5 thousand
for field nurseries. Return to capital was negative
for container nurseries overall (-$1.8 thousand), and
large container firms (-$49.2 thousand). This
negative return to capital simply means that all net
income was taken by management rather than paid
as dividends to stockholders or kept as retained
earnings. Return to capital was $449.1 thousand for
large field firms, $22.7 thousand for small field
nurseries, and $14.4 thousand for small container
firms.

Net profit margin is the ratio between return to
capital and total gain. As shown in Figure 12, field
firms had a profit margin of 29.0%. Since container
firms had a negative return to capital, net profit
margin was also negative (0.4%) The most
profitable firms had net profit margins of 28.9% for
container nurseries and 41.4% for field firms. Thus,
field nurseries showed greater average profit not only
in absolute dollars but as a share of business volume.

Rate of return on capital or "return on
investment" is a common indicator for evaluating
alternative investments, comparable to annualized
yields on stocks, bonds, or savings deposits. It is
calculated by dividing return to capital by the total
current value of capital owned. Rate of return on
capital averaged minus .23 percent for container
nurseries and 12.12 percent for field nurseries
(Figure 13). Large container firms had an average
rate of return on capital of minus 3.50%, while small
firms had 5.04%. Among field nurseries, large firms
had a 28.13% rate of return on capital, and small
firms 3.63%. The most profitable firms had rates of
return averaging 30.14% for container nnurseries and
26.29% for field firms.

Financial Position
Assets and liabilities are depicted in Figure 14.
These data represent the mid-year financial situation
of the nurseries, derived as an average of the year-
beginning and year-end balance sheet figures.

Figure 14--Assets and Liabilities, container and field
nurseries in Florida, 1989.

Assets
Total assets were the same as capital owned,
discussed previously.

Current Assets consisted of cash on hand,
accounts receivable, and plant and supply inventories.
Total current assets averaged $602.1 thousand for
container nurseries and $970.2 thousand for field
firms. Cash on hand averaged $14.0 thousand and
$18.2 thousand, respectively. Accounts receivable
averaged $39.9 thousand for container nurseries, and
$44.8 thousand for field nurseries. As a proportion
of annual sales, these amounts represented 10

Long term assets included owned capital
investments in fixed assets such as buildings,
machinery and land. Current values of fixed assets
are the original cost less accumulated depreciation.
Original investment costs averaged $298.9 thousand
for container nurseries and $264.9 thousand for field
firms. Subtracting accumulated depreciation left
current values of long term assets of $159.0 thousand
and $172.2 thousand, respectively. Field nurseries
had less depleted fixed assets: as a portion of the
original investment, these current values represented
53 percent for container and 65 percent for field
firms.

Uabilities
Liabilities represented in the Nursery Business
Analysis did not include any debt to related parties
in closely held or "family" corporations, as these are
usually not true debts which must be repaid. Total
liabilities averaged $153.1 thousand for container
firms and $171.4 thousand for field nurseries.

Current Liabilities averaged $34.1 thousand for
container nurseries and $16.7 thousand for field
firms. The ratio of cash and accounts receivable to
current liabilities, known as the "quick ratio", is a
standard indicator of the ability to pay current
operating expenses. This measure averaged 1.58 for
container nurseries and 3.78 for field firms.

Long Term Liabilities, including notes payable
and mortgages, averaged $119.1 thousand for
container nurseries and $154.7 thousand for field
nurseries.

Net Worth is the difference between total assets
and total liabilities, or the value of the owner's share
of the assets, as opposed to lenders'claims. Net
worth averaged $608.0 thousand for container
nurseries, and $970.9 thousand for field firms.

Financial Leverage
Leverage expresses the ratio between total assets
and net worth. Higher values indicate a greater
potential for "multiplying" returns per dollar of net
worth, but also a greater financial risk. The leverage
ratio averaged 1.25 for container firms and 1.18 for
field firms (Figure 14). In other words, container

firms had a greater value of total assets per dollar of
net worth than did container firms. Large and small
container firms had the same leverage (1.27). Both
large and small field firms had slightly below-average
leverage (1.05 and 1.13, respectively). Generally,
leverage factors below 2.0 are considered to
represent a very safe financial position. There was
no indication of any relationship between financial
risk and profitability, as the most profitable firms of
both types had below-average leverage (1.13, and
1.06).

Return on Net Worth
The ultimate measure of profitability is expressed
in terms of returns per unit of net worth. This
measure takes into account the financial risk
embodied in the leverage factor. Leverage is
multiplied by rate of return to capital to yield the
rate of return on net worth. This is the same as
derived by simply dividing return to capital ($) by net
worth. Since leverage is always greater than or
equal to one, return on net worth is always greater
than or equal to the absolute value of rate of return
on capital. Return on net worth averaged minus 0.3
percent for container firms and 14.3 percent for field
nurseries. Large firms had returns on net worth
averaging minus 4.4% for container and 29.5% for
field nurseries, while small firms had 6.4% and 4.1%,
respectively. The most profitable firms had returns
on net worth averaging 34.0% for container and
27.8% for field nurseries.

SUMMARY

Key Factors Affecting Profitability
Characteristics of the most profitable nurseries
are summarized in Table 4, by comparison to the
overall averages. Differences between groups are
presented as percentages reflecting the deviation of
the most profitable firms from the industry averages.
Also, qualitative descriptors of this relationship are
given, with deviations of 0% to 19% labeled as
"normal", 20% to 49% as "high" or "low", and 50%
or greater as "very high" or "very low".
Profitable firms of both types had high or very
high space productivity (production/sq.ft.), labor
productivity (production/person), and inventory
turnover. Managed capital turnover was also high
for profitable container firms, but only normal for
field nurseries. Capital managed per person was
normal for both types; capital managed per acre was
low for container firms, very high for field firms.
Space/Labor intensity was normal for container
nurseries, but high for field firms, as indicated by
low growing area per person. Total costs per square
foot of growing space were normal for profitable
container nurseries, very high for field firms. Costs
per dollar value of production for profitable firms of
both types were low or very low for all categories
except supplies. Most significantly, labor costs were
34% and 23% below-average, respectively. Overall
financial position of both types of profitable firms
was very secures, as indicated by high quick ratios
and ratios of total assets to total liabilities.

Container and Field Nurseries in Florida, 1989

CONCLUDING COMMENTS
Nearly all indicators showed a decline in the
financial performance for both container and field
woody ornamental nurseries in 1989 since the
previous year. The decline was more serious for
container nurseries since the average firm in 1989
had a negative rate of return to capital. These
results probably reflect generally lower product price
levels, higher costs, and increased competition, rather
than a change in productivity or efficiency of
resources in the industry. However, lower returns to
investments will probably curtail growth in the
industry, and perhaps bring about some reduction in
production capacity, eventually reducing competition,
balancing supply and demand, and restoring profits
to normal levels.

Florida Nursery Business Analysis Program
The Florida Nursery Business Analysis Program
is a service of the University of Florida provided on
a strictly confidential basis, and is free of charge.
Besides Woody ornamental container and field
nurseries, other types of nurseries in the program
include foliage plant nurseries in Central and South
Florida, and flowering plant nurseries. Nursery
managers wishing to participate in the program may
contact the authors or an IFAS agent in a local
county Extension office. Nursery operators who
authorize a commercial accounting firm to supply the
data required for the program can participate with a
minimum of effort on their part.

Container and Field Nurseries in Florida, 1989

Table 4-Summary of Key Indicators Affecting Profitabllity

...............Container...............
All Most Profit Deviation

38 firms

Value of Production/Sq.Ft. Growing

Space SO.92

inventory Turnover . . .

Value of Production per Person . .

Growing Area per Person (sq.ft.) .

Managed Capital Turnover . .

Managed Capital Per Person . .

Managed Capital Per Acre . .

Total Costs/Sq.Ft. Growing Space ....

Costs/Dollar Value of Production
Labor . . . .

Supplies . . .

Other Production Costs . .

Administrative and Overhead .

Non-Cash Costs . . .

Total . . . .

Cash Costs/Dollar Value of Sales .

Accounts Receivable/Sales . .

Quick Ratio . . . .

Total Assets/Total Liabilities . .

77.5X

$28,794

31,435

49.1%

$61,281

584,918

S1.15

SO.52

S0.27

0S.06

50.12

0O.28

1S.26

S0.93

0.10

1.58

4.97

9 firms

S1.19

160.0%

$43,561

36,464

70.5X

$50,819

$60,708

50.99

0.35

0.22

SO.03

S0.10

50.14

50.83

0.84

0.11

4.75

8.70

from average

305 Nigh

107% Very High

51% Very Nigh

16% Norma

44 Nigh

-17% Normal

*29% Low

*14X Normal

Low

Normal

Low

Low

Very Low

Low

Normal

Normal

Very High

Very High

-34X

-19%

-42%

-23%

-51%

*34%

-10X

11X

200%

75%

...............Field ........- ......
All Most Profit Deviation
11 firm 4 firms from average

0O.22

37.8%

S50,853

226,844

21.8%

$170,388

32,719

0.23

0SO.39

80.18

SO.05

0S.07

80.32

S1.02

SO.95

0.13

3.78

6.66

SO.55

48.8X

$69,970

127,767

22.8%

$186,544

563,599

$0.43

S0.30

50.18

50.04

50.05

50.22

50.79

S0.94

0.16

9.87

18.17

144%

29%

38Z

-44X

4X

9%

94%

89%

-23%

-29X

-32X

25X

161%

173%

Very High

High

High

Low

Normal

Normal

Very High

Very High

Low

Normal

Low

Low

Low

Low

Normal

Nigh

Very High

Very High

Qualitative Descriptors: very low, low, normal, high, very high.
Low and high descriptors represent deviations from industry average between 20% and 50%.
Very Low and Very High descriptors represent deviations from industry average greater than 50X.

Full-Time Equivalent Worker: the equivalent of
one person working 40 hours a week for 52 weeks
a year (2080 hours a year). The most common
method for obtaining the number of full-time
employees for this report was to divide the total
annual payroll hours for the nursery by 2080, then
add the number of family and management
personnel not paid on an hourly basis.

Capital Owned: the current value (cost less
accumulated depreciation) of land, buildings,
equipment, and other current assets. Related debt
is not deducted in this determination.

Total Gain: the sum of plant sales, changes in
plant and supply inventories, and miscellaneous cash
income. It represents the total result of the year's
operations.

Net Nursery Income: the return for the time and
skills of management, and for the use of the capital
invested in the operation. It is calculated as total
gain less all cash costs, except management's
compensation, and all non-cash costs, except the
non-cash interest allowance on capital.

Return to Capital: is what the owned capital
earned, calculated as the portion of net nursery
income that is left after subtracting management's
compensation or time value.

Rate of Return On Capital: is the rate earned on
the capital invested, equivalent to quoted yields on
stocks, bonds, savings deposits. It is calculated as
return to capital divided by the value of owned
capital.

NOTES ON CALCULATIONS
Analysis of your own operation for comparison
with the findings of this report can be done with the
information in the Appendix Tables. Blank spaces
are provided for entry of your data. Make
calculations for your nursery data in Appendix Tables
2, 3, 4, and 5, according to the formulas shown on
each line which refer to Appendix Table 1.

The University of Florida also supports a
microcomputer program for making these
calculations. This program can be ordered from: